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MDU Resources Group scored a record first quarter as its oil and natural gas division continues to bring in big profit. The company has surprised on estimates 2 of the last 4 quarters by an average of 2.38%. MDU Resources has a forward P/E of 14.08.

Company Description

MDU Resources Group Inc. (MDU) provides energy and transportation infrastructure within a diverse group of businesses in three core areas of energy, construction materials and utility resources.

The company, headquartered in Bismarck, ND, operates 5 different business segments including natural gas and oil production, natural gas pipelines and energy services, construction materials and contracting, construction services, and electric and natural gas utilities.

Five Business Segments

In the Natural Gas and Oil Production segment, through the Fidelity Exploration & Production Co., MDU is engaged in natural gas and oil exploration primarily in the Rocky Mountain and Mid-Continent regions and in the Gulf of Mexico.

In the Natural Gas Pipeline and Energy Services segment, through WBI Holdings, Inc., the company provides natural gas transportation, underground storage and gathering services through regulated and non regulated pipeline systems primarily in the Rocky Mountain and northern Great Plains.

In the Construction Minerals and Mining segment, MDU operates under the Knife River Corporation which mines aggregates and markets crushed stone, sand, gravel and related construction materials, including ready-mixed concrete, cement, and asphalt.

In the Construction Services segment, the company operates as MDU Construction Services Group, Inc. which specializes in electrical line construction, pipeline construction, inside electrical wiring and cabling, mechanical services and the manufacture of specialty equipment.

Finally, the company also operates three energy distributors in its Electric and Natural Gas Utilities segment.

Electric and Gas Utilities Montana-Dakota Utilities Co., generates electricity and distributes natural gas in Montana, North Dakota, South Dakota and Wyoming, Great Plains Natural Gas Co. distributes natural gas in western Minnesota and southeastern North Dakota and Cascade Natural Gas Corp. serves 65 communities in Washington and 28 in Oregon.

Growing Through Acquisitions

MDU has been acquiring companies recently. On May 19, the company announced it had agreed to buy Amador Transit Mix, Inc., a ready-mix concrete producer in Sutter Creek, CA. Amador will become a part of Knife River Corporation, in the construction materials segment. The price of the acquisition was not disclosed.

On July 1, MDU announced it had entered into a $328 million agreement to acquire Intermountain Gas Company in a cash-for-stock transaction. Intermountain Gas will expand the company's Electric and Natural Gas segment.

Intermountain serves 300,000 customers in Idaho, including the Boise metropolitan area. Intermountain saw recent customer growth of approximately 4.5% annually. With the acquisition, MDU will service 930,000 customers nationwide.

MDU Reports Record First Quarter Earnings

On May 2, MDU Resources Group reported first quarter earnings that beat Wall Street estimates by 8.33%, or 3 cents a share. Earnings from continuing operations rose 72% to $70.9 million, or 39 cents per share, from $41.2 million, or 23 cents per share, in the first quarter of 2007.

The quarter was powered by record quarterly earnings in the natural gas and oil production segment which rose 65% over 2007. Production grew 8%.

In April, Fidelity Exploration & Production Company announced positive initial results from its first two operated wells in the middle Bakken formation in North Dakota. The company is increasing its drilling plans and now expects to explore approximately 50 to 60 wells in 2008 in the Bakken.

The pipeline and energy services business also had a great quarter, as earnings grew by 25% over a year ago. Total throughput grew by 6%.

As expected, the construction materials segment struggled as the U.S. economy and residential construction slowed. The company said construction workloads, margins and product volumes from existing operations declined sharply in the quarter. However, the huge gains in the energy segment more than made up for any losses in the construction group.

2008 Guidance Rises

With energy prices continuing to rise, the company raised its 2008 full year earnings guidance to a range of $1.85 from $2.10 per share. The previous guidance had called for a range of $1.60 to $1.90 per share.

Consensus Estimates Up for the Second Quarter and 2008

Brokerage analysts responded to the revised guidance forecast and raised estimates 2 months ago. But in the last 30 days, consensus estimates have moved sharply higher, above the company's guidance range.

For the second quarter, estimates rose 5 cents to 56 cents from 51 cents in the last month. For the full year, 50% of the covering analysts raised estimates in the last 30 days. Consensus estimates now call for $2.24 per share, up 8%. This is 14 cents higher than the top of the company's forecast. MDU reports second quarter earnings on Aug 4.

Value Fundamentals

MDU Resources Group has a forward P/E of 14.08, under the industry average of 20.63. Its price-to-book is 2.43. The company has a solid five year average return on equity [ROE] of 14.23%. MDU also pays a dividend, with a current yield of 1.70%.

Source: MDU Resources: Growing Through Acquisitions